Question

1. Harry Brown wants to borrow $30,000 for a period of fifteen years. He has two choices. MaxWest Bank is offering to lend him the $30,000 at 8.0 percent compounded semi-annually. He can also borrow from his company and will have to repay a total of $97,302 at the end of fifteen years. Should Harry borrow from MaxWest Bank or from his company; and what is the interest rate if he borrows from his company? (Rounded to one decimal point).

1. Borrow from Company: Company Interest rate is 7.8%
2. Borrow from Company: Company Interest rate is 8.7%
3. Borrow from Bank: Company Interest rate is 8.7%
4. Borrow from Bank: Company Interest rate is 7.8%
5. None of the above

2. Rick Richmond wants to buy a house in five years’ time. He hopes to be able to put a deposit of $40,000 at that time. If the bank term deposit he wants to invest in will pay 7.5 percent annually, how much will he have to invest today? (Rounded to the nearest dollar.)

1. $25,662
2. $26,552  
3. $26,772
4. $27,862
5. None of the above

3. Colin Collingwood intends to deposit $20,500 in an account paying an annual interest rate of 6 percent compounded quarterly.  After seven years, what would be the difference between the compound interest he will earn and the interest he would have earned if it was only simple interest? (Rounded to the nearest dollar.)

1. $1,993
2. $1,884  
3. $1,558
4. $1,765
5. None of the above

4. What is the present value of an annuity due consisting of 5 annual payments of $4,000 with an interest rate of 9% p.a.

1. $16,959
2. $16,006  
3. $19,558
4. $18,765
5. None of the above

** Please show the all mathematical steps and the Financial Calculator step if possible, Thanks.

Answer 1

1	Amount to be borrowed	$ 30,000.00
	Interest Rate	8%
	Time Period	15 years
	Amount to be repaid at end of 15 years
	30000*(1+(.08/2))^(15*2)	=	$                              97,301.93
	This is equal to amount that needs to be repaid to company
	Therefore interest is 8% for company as well
	Answer - E - None of above
2	Amount needed at end of five years		$                              40,000.00
	Interest Rate	=	7.50%
	Let the amount to be invested be X
	X*(1+.075)^5	=	$                              40,000.00
	X	=	40000/(1+.075)^5
	X	=	$                              27,862.35
	Answer - D - 27862
3	Amount invested	$ 20,500.00
	Interest Rate	6.00%
	Time Period	7 years
	Amount after 7 years	=	20500*(1+(6%/4))^(7*4)
	Amount after 7 years	=	$                              31,103.05
	Compounded Interest	=	$                              10,603.05
	Amount of simple interest	=	20500*6%*7
	Amount of simple interest	=	$                                8,610.00
	Difference between both the interests	=	$                                1,993.05
	Answer - A - 1993
4	Amount invested	=	$                                4,000.00
	Interest rate	=	9%
	No. of payments	=	5
	PV	=	4000*(1-(1+0.09)^-5)/0.09
	PV	=	$                              15,558.61
	Answer - E - None of the Above